Tuesday 21 November 2017

Euro gains as ECB mood shifts away from loose money

European Central Bank (ECB) President Mario Draghi. Photo: Reuters
European Central Bank (ECB) President Mario Draghi. Photo: Reuters
Donal O'Donovan

Donal O'Donovan

The euro strengthen on currency markets yesterday, after a report that European Central Bank (ECB) policy-makers are growing sceptical about the need for further policy action in the near term.

Reuters reported yesterday that five ECB board members had indicated their reluctance to loosen policy even as inflation expectations sink and some investors bank on more financial easing. Next week's scheduled interest rate meeting is expected to be relatively uneventful with the big test coming when the ECB releases its initial 2016 growth and inflation forecasts on March 10.

Irish exports have been boosted over the last year as a result of ECB moves that weakened the euro, but any reverse in that trend could hit the economy here.

ECB rate-setters who spoke to Reuters yesterday said they remain wary about taking further action in the coming months, even if that requires them to temporarily turn a blind eye to the impact of falling oil prices or the fact that inflation has been below the ECB's target for three years.

The ECB cut its deposit rate deeper into negative territory in December and extended its assets purchases by six months, hoping that more money printing would spur lending, economic activity and inflation.

The euro hit an 11-month high against sterling in early trading yesterday, but gave up some of those gains after Bank of England rate-setters voted to keep interest rates unchanged.

The nine-strong Monetary Policy Committee (MPC), which sets UK interest rates, voted eight to one to keep rates at the record low of 0.5pc.

However, sterling saw some gains on indications that policy- makers will push ahead with a rate rise later this year, despite the latest signs of weakness and volatility on global markets.

Sterling has been battered on the markets in recent weeks, reflecting slowing economic growth there but also wider fears for the UK economy if voters opt to exit the European Union when they cast their ballots in a referendum later this year. Markets shrugged off that risk last year, but polls indicating a 50/50 split among British voters have brought it to the fore.

Irish Independent

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